Accounts receivable factor is being used extensively across many industries such as IT, Health care, Human resources, construction, trucking and transport, and many more. It has become a lifeline for many businesses because this method of financing solution has helped the businesses to keep their expenses going while they wait for the payment from their clients. If you are also bothered about the cash flow and stuck payment from the client and are looking for something similar, do explore the invoice factoring option for you.
To explain the meaning and definition of the accounts receivable or factoring accounts receivable, it is a financial transaction between companies and the factoring company, where the former sells its accounts receivables or bills or invoices to the latter and receives the payment in return. Later the factoring company retrieves the payment from the clients of the company.
This transaction aims to provide a certain amount of cash to the business owners, who do not want to wait for the payment from their client for many months and weeks. They get payment from the invoice company in very less time as compared to waiting for the payment from the clients. Factoring is hence considered as the best option because it allows the company to carry on with their daily expenses and not cease to work due to the stopped cash flow.
Another essential benefit that factoring account receivable company offer is taking the risk of receivables. This becomes a savior to the businesses who have opted for the non-recourse factoring. In a non-recourse factoring service, even if the client does not pay his bills to the freight factoring company, the business company is not held responsible and accountable for the same. Non-recourse factoring though is costly but worth. It is preferred because does not involve any risk if the client becomes a defaulter. But in a recourse factoring, the business owners are held responsible for making all the payments against their bills, even if their client does not pay them. The fee of the recourse factoring is kept lesser as compared to the non-recourse factoring because there is a greater risk involved.
These services are offered by the factoring company and in return, they charge their factoring fee from the companies. This fee is a part of the amount of the accounts receivables that is factored. The fees can depend on various factors such as the amount of the receivables, the specific industry it has worked for, the creditworthiness of the clients of the company, the number of outstanding days, and many more.
Many accounts receivable companies provide other additional services such as real-time reporting so that you are updated with the latest client collection reports.